JPMorgan nears $13-billion mortgage settlement with U.S. agency

Andrew Tangel

NEW YORK -- The nation's biggest bank is close to shelling out the largest-ever penalty for a single company in American history.

The U.S. Department of Justice and JPMorgan Chase & Co. are close to finalizing an agreement over a $13-billion settlement stemming from faulty mortgage investments that fueled the financial crisis of 2008, a person close to the negotiations said late Monday.

The final deal, which has been in the works for weeks, could be announced as soon as Tuesday, said the person, who was not authorized to speak publicly.

The $13 billion would be shared by various federal and state agencies, including the offices of New York Atty. Gen. Eric Schneiderman and California Atty. Gen. Kamala D. Harris, according to two people familiar with the negotiations.

Much of the gargantuan settlement -- equal to more than half of all the bank's profit last year -- relates to soured loans originated and packaged by Washington Mutual and Bear Stearns, two troubled banks JPMorgan gobbled up as the financial crisis worsened.

“This is a huge win for the government -- a $13-billion settlement from one of the pillars of Wall Street," said Thomas Gorman, a former enforcement attorney at the U.S. Securities and Exchange Commission who is now in private practice in Washington, D.C. “It really says that the government is going to hold Wall Street accountable.”

Of the $13 billion total, $4 billion is earmarked for relief to homeowners battered by foreclosures. The settlement would forestall a major lawsuit threatened by Benjamin Wagner, the U.S. attorney in Sacramento, whose office has been investigating mortgage investments sold by JPMorgan itself in the lead up to the housing meltdown.

Legal woes have bedeviled JPMorgan in recent months. The bank recently disclosed it had set aside $23 billion for litigation costs, and that its legal tab could rise by an additional $6 billion.

The settlement would enable the bank's management to focus less on managing litigation.

“For the bank it’s a big step forward,” Gorman said. “It doesn’t get them all the way to peace, but it gets them a long way down the road.”

A parallel criminal probe by Wagner's office into JPMorgan's mortgage bonds would be unaffected by the settlement, another person familiar with the negotiations has said.

Legal experts predict the JPMorgan settlement may serve as a template for other major banks in the government's cross hairs over crisis-era actions.

The federal government's hand was strengthened recently when U.S. prosecutors in Manhattan scored a victory in their major civil fraud case against Bank of America Corp.

In that case, the government had used a law put into place during the savings and loan crisis of the 1980s.

“You wouldn’t expect it to stop with JPMorgan,” said Arthur Wilmarth Jr., a law professor at George Washington University who advised the Financial Crisis Inquiry Commission.